W2_Reginald Nwachukwu_Using NPV As Decision Making Tool

1.  Problem Definition or Opportunity Statement:

“ To Evaluate Repayment Option for a Self Loading Concrete Mixer"

Figure 1 Alternative (A) $120,000

                                                     Figure 2  Alternative (B) $ 130,000

2.  Development of Feasible Alternatives:

As a project engineer, I have been asked to evaluate the two different repayment options
for a new self loading concrete mixer. I have two alternatives available A and B.

a.    Alternative (A)

b.    Alternative (B)

                                                      Table 1 Cash flow Disbursement for (A) and (B)

3.  Development of Outcomes of Each Alternatives:

The outcome for each alternatives is to have convert the cash flow series to a present   value PV

4.  Selection of Acceptable Criteria:

The criteria used to benchmark the selection of " best" alternative is higer NPV

5.  Analysis and Comparison of  The Outcome from Each Alternatives:

The alternatives are analysed using the present value method to be compared on equivalent basis.

                                Table 2 Net Present Value NPV for (A) and (B)

6.  Selection of the Preferred  Alternatives :

Selection of the preferred alternative is to select the alternative with higher NPV.

Alternative (B) is the preferred  repayment option.

7.  Performance monitoring and Evaluation Results:

References:

1.       AACE International. Skills & Knowledge of Cost Engineering. 5th Edition Revised”, 2007. Morgantown, WV.

2.       Sullivan William. Wicks M, Elin. Koelling C, Patrick. Engineering Economic, Fourteenth edition. Pearson International Edition, 2009.